Consumer understanding of overdraft programs — including their perceptions of experiences, beliefs about advantages, and drawbacks to alternatives – are explored through “qualitative interviews” about the product issued in a report by the Consumer Financial Protection Bureau (CFPB) Tuesday.

Consumers noted benefits and drawbacks to the availability of overdraft; however, all study participants were concerned about the high cost of overdraft fees.

Participants commonly reported surprise at the overdraft fees they were charged, although some expressed awareness that they risked overdraft fees when transacting.

Participants expressed uncertainty about how their financial institutions make decisions about what to pay into overdraft or how overdraft fees are charged; participants were particularly uncertain about how their financial institution’s overdraft policies differed across types of transactions.

Many participants’ overdraft experiences reflected uncertainty about transaction processing, such as the timing of deposits being credited to their accounts. Participants also commonly forgot about scheduled payments that resulted in overdrawn accounts.

Participants frequently cited friends and family members as resources that could provide an alternative for them to overdraft. Views on other alternatives — credit cards or savings — diverged widely, with some participants viewing these alternatives as beneficial and others viewing alternatives as risky.

Overdraft programs (sometimes also called “courtesy pay”) at financial institutions are intended to avoid consumers’ checks or payments through a debit card “bounce” (returned unpaid) due to insufficient funds (NSF) in the account. In some cases, fees are charged for the service, depending on the number of overdrafts incurred a month, the amount – or both.

“Overdraft and NSF fees accounted for approximately 65% of revenues from consumer deposit account fees for banks with over $1 billion in assets in 2015,” the report states. “Not all consumers incur these fees, but among those that do, the annual cost can be significant. Among the same sample of accounts from several large banks, accountholders that incurred one or more overdraft or non-sufficient funds (NSF) fees paid an average of $225 in overdraft and NSF fees per year.

CFPB said the interviews for the report were conducted by an independent research firm, which held in-depth telephone interviews with 88 consumers who had experience with overdraft or NSF in the prior two years. Participant requirements included:

They had to have reported experiencing more than one overdraft or NSF or paying at least $50 in overdraft or NSF fees in the preceding two years;

Had to be 18 years old or older;

Had reported holding an open checking account with a bank or credit union within the previous 12 months.

“In screening for eligibility, as well as during the interviews with consumers about their experiences with overdraft, researchers conducting the study relied upon consumer’s self-reporting of their characteristics and experiences. In some cases, participants’ recollections about the transactions upon which they were charged fees may differ from their financial institutions’ accounting of overdrafts and fees,” CFPB stated.

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